Investments are a way to make savings grow. This is naturally more efficient than letting them sit in an account where they don’t change unless you add more from your salary to it. Investments can broadly be classified into two types, i.e., short-term and long-term. This is due to the fact that with investments, financial goals have to be set with a certain timing sense. William Schantz stresses that this is why investments have to be divided across time horizons.
So, how does one differentiate between short and long-term goals? What benefits does each bring and how can a person decide which one is best for them? Let’s take a closer look:
William Schantz Describes the Differences between Investment Types
Long and short-term investments vary in a number of ways. The first of these is that the risk profiles of each are different. Stocks, for example, can have a lot of volatility in their value over a short period of time. Short-term investments, as a result, can expose investors to market swings. You may have to bear a financial loss if you’re compelled to withdraw your money during a stock market downturn. On the other hand, holding stocks as a long-term investment can significantly increase your capital. Top-performing firms’ stocks have a history of rising over time.
William Schantz also states that both the types of investments cater to different types of life goals. Insurance products for example are a long-term investment made to fulfill a goal that might be realized later in life. Other examples of long-term goals include; education and retirement funds, purchasing homes, and building wealth. In contrast, short-term goals like weddings, supporting aging parents, vacations, and home renovations can be made through investments in the category that yields returns in a short time.
William Schantz’s Guide to Picking One over the Other
There are certain parameters that people can base this decision on. William Schantz notes that if people have 10, 20 or 30 years for a certain objective to be realized, long-term investments are the best bet. There is less risk here because people can’t wait for markets to recover. Also, long-term investments help individuals save their wealth from being eroded due to the effect of inflationary pricing. Putting money in stocks, for instance, are risky but offers higher returns over a long time.
Short-term investments are the complete opposite. They are made when the relevant need will arise soon like the wedding of your children or the need to purchase a vehicle. Also, if you are in a situation that requires you to have a constant income flow, short-term investments can help you achieve this objective.
Short-term and long-term investments have their own benefits and drawbacks. The decision to invest in one or the other depends on the goals that a person has and whether they are able to take the risk or not. William Schantz concludes that both can yield great returns only if the customer themselves is careful.